Ex-RBI Governor Raghuram Rajan Believes That 'People Will Find Ways To Divide Their Hoard' And Doesn't Support Modi's New Policy

The demonetisation of 500 and 1000 rupee notes is something the nation has still not been able to digest completely. Many people are pro this change and are also applauding the RBI governor, Urjit Patel for supporting Modi’s decision to drive out black money from the economy.

Amidst the current mood of the economy, the rumours about this decision being a ‘planned’ move and being in process for around six months has got a lot of people thinking about how much did the ex RBI governor, Raghuram Rajan contribute to this movement.

One cannot clearly state whether he had any say or not in that matter, but Raghuram Rajan has put forward his point of view, which makes it very clear that he does not support the demonetisation policy.

“I am not quite sure if what you meant is demonetise the old notes and introduce new notes instead. In the past demonetization has been thought off as a way of getting black money out of circulation. Because people then have to come and say "how do I have these ten crores in cash sitting in my safe" and they have to explain where they got the money from. It is often cited as a solution. Unfortunately, my sense is the clever find ways around it.

They find ways to divide up their hoard into many smaller pieces. You do find that people who haven't thought of a way to convert black to white, throw it into the Hundi in some temples. I think there are ways around demonetization. It is not that easy to flush out the black money. Of course, a fair amount may be in the form of gold, therefore even harder to catch. I would focus more on the incentives to generate and retain black money. A lot of the incentives are on taxes.

My sense is the current tax rate in this country is, for the most part, reasonable. We have a reasonable tax regime, for example, the maximum tax rate on high incomes is 33%, in the US it is already 39% plus State taxes, etc., it takes it to near 50. We are actually lower than many industrial countries. Given that, there is no reason why everybody who should pay taxes is not paying taxes. I would focus more on tracking data and better tax administration to get at where money is not being declared. I think it is very hard in this modern economy to hide your money that easily.

He is missed by many, while others believe he is gone for good. Well, to each his own, what else can we say?